CRUDE OIL FORECAST, MARKETS & PIPELINE EXPANSIONS

Transcription

1 CRUDE OIL FORECAST, MARKETS & PIPELINE EXPANSIONS JUNE 28

2 EXECUTIVE SUMMARY Canada s oil sands, located primarily in Alberta, are an immense resource of crude oil. In fact, the Alberta oil sands areas contain the second largest established reserves in the world at 173 billion barrels of crude bitumen. CAPP estimates industry will invest about $2 billion this year to develop the oil sands. The technology used to produce these resources is dependent on the nature of the reserves. Eighteen percent of Alberta s oil sands reserves are close enough to the surface (less than 2 feet) to be mined. The remaining 82 percent are extracted through in situ recovery methods that use drilling technology to deploy steam or solvents into the reservoir in order to mobilize the bitumen so it can be pumped to the surface. The size of the resource has attracted oil companies from all over the world. Canadian Crude Oil Production and Supply Since the publication of CAPP s June 27 forecast, there have been significant changes to government policy. These changes include the Federal Government s elimination of the Accelerated Capital Cost Allowance, the Alberta Government s introduction of a new framework to increase oil royalties, and both Federal and Provincial climate change initiatives. Nonetheless, more oil sands projects have been announced, which is indicative of industry s optimism regarding Canada s oil sands opportunities. However, with new opportunities come new challenges, including issues of environmental sustainability and impact, and increased time allotment for regulatory processes. In addition to addressing these emerging challenges, traditional challenges such as the limited availability of labour and materials and increasing costs have contributed to a lower forecast when compared to last year. CAPP has assumed that the current investment climate will generally remain unchanged throughout the forecast time-frame so, any new changes could conceivably impact the production levels anticipated in this report. In early 28, CAPP conducted its annual survey of oil sands producers to obtain their current and planned oil sands production through to 22. CAPP adjusted the survey results to reflect, among other things, historical and projected performance trends. CAPP has prepared two production and supply cases the Moderate Growth Case and the Pipeline Planning Case. The Moderate Growth Case represents the expected outlook while the more aggressive Pipeline Planning Case has been developed for pipeline planning purposes. In the Moderate Growth Case, total Canadian crude oil production is projected to increase from 2.7 million b/d in 27 to almost 4.5 million b/d in 22. In the Pipeline Planning Case, production rises to about 5. million b/d. In both cases, oil sands growth is significant. Recent trends indicate the year-over-year decline rate for conventional crude oil production has slowed somewhat due to higher crude oil prices and, in fact, production has increased slightly in Manitoba and Saskatchewan. However, due to the maturity of the Western Canada Sedimentary Basin, conventional crude oil production will continue to decline through 22. i CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS

3 In 27, production off the east coast of Canada was 369, b/d, which represents approximately 13 percent of total Canadian crude oil production. East coast crude oil production is forecast to begin declining this year. Crude Oil Markets Expected growth in western Canadian crude oil supply will require additional pipeline capacity to meet demand in existing and new markets. To assess this requirement, CAPP surveyed refineries in traditional and in some potential new markets. The survey results, which were not adjusted by CAPP, illustrate that demand for western Canadian crude oil by Canadian refineries (i.e. western Canada and Ontario) is expected to rise from about 825, b/d in 27 to almost 1.1 million b/d in 215, a 33 percent increase. Over the same period, the U.S. refinery demand for western Canadian crude oil, according to the survey, is projected to increase from about 1.6 million b/d to almost 3.5 million b/d, an increase of 12 percent. In both the U.S. and Canadian markets, demand for western Canadian heavy crude oil, including bitumen, increases dramatically. The refinery survey results indicate that traditional markets (i.e. western Canada, Ontario, U.S. Midwest, Rocky Mountains and Washington State) will continue to process large volumes of western Canadian crude oil. There is, however, potential for expansion into new markets such as Québec, U.S. East Coast, U.S. Gulf Coast, California and potentially Asia. Crude Oil Pipelines and Expansions Western Canadian crude oil pipelines are reaching the limits of their capacity and, therefore, additional capacity is required. Approximately 1.1 million b/d of new pipeline capacity is being added through the end of 21 which should be sufficient until 213. Subsequently, a significant amount of additional pipeline capacity will be required to meet expected oil sands growth. There are numerous pipeline proposals to new markets such as the U.S. Gulf Coast and East Coast which reflect the significant increases in heavy and light synthetic crude oil supply. It should be noted, however, that it generally takes four to five years for a new pipeline to be put into service. With respect to potential new markets, there are a large number of either direct or indirect pipeline proposals to the U.S. Gulf Coast market. This reflects the availability of heavy crude oil conversion capacity in this market as well as projected growth in heavy crude oil supply from western Canada. Expected growth in supply could exceed demand in traditional markets. In the Pipeline Market Demand for Western Canadian Crude Oil Actual 27 vs 215 Potential (613) Moderate Growth Case Canadian Oil Sands & Conventional Production 6, 5, 4, ACTUAL FORECAST 27 Forecast PADD V (2,646)? 122 PADD IV (598) (3,622) 2,378 1,98 PADD II (385) , 2, PADD III (7,99)? PADD I (1,627) , East Coast In Situ Mining Conventional Heavy Conventional Light Pentanes PADD: Petroleum Administration for Defense District (Total 28 refining capacity All crude) Potential demand for Western Canadian crude Actual demand for Western Canadian crude CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS ii

4 Planning Case, heavy crude oil supply is estimated to rise by almost 1.5 million b/d in 22. It is interesting to note, as well, the number of pipeline proposals to the U.S. East Coast market, which is essentially a light crude oil market. In the Pipeline Planning Case, light crude oil supply is also projected to increase by 1.2 million b/d in 22. Conclusions In order to accommodate the growth in oil sands supply, approximately 1.1 million b/d of pipeline capacity is being added from western Canada through the end of 21, which should be sufficient until 213 given the growth in the Pipeline Planning Case. Subsequently, additional pipeline capacity will be required to meet expected oil sands growth. There are pipeline proposals that will enable access to several markets in North America, including a pipeline reversal to extend access deeper into eastern Canada. Other notable markets, which have significant potential to process increasing volumes of Canadian crude oil, include new markets in the United States and potentially Asia. Producers are currently assessing these markets in order to decide which pipeline proposals to support. This report provides an assessment of the supply outlook, the market potential and the pipeline proposals to enable a more complete understanding of the current Canadian crude oil picture. iii CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS

5 Canadian & US Crude Oil Pipelines All Proposals 32 3 Burnaby 31 Anacortes Trans Mountain 2 Edmonton 5B Hardisty 5A 29 Salt Lake City Express Guernsey Platte St. Paul 4 18 Superior 8 7A Enbridge Sarnia Chicago Toledo 24 7B Lima Wood Patoka River Montréal 11 Buffalo Philadelphia 12 Portland 22 Cushing 21 Mid Valley Houston 34 Capline 2 19 St. James 1 Kinder Morgan TMX1A Expansion 2 Kinder Morgan TMX1B Expansion 3 TransCanada Keystone 4 TransCanada Keystone Cushing Extension 5A Enbridge Alberta Clipper 5B Enbridge Line 4 Extension 6 Minnesota Pipeline Expansion 7A Enbridge Southern Access Expansion 7B Enbridge Southern Access Extension 8 Enbridge Line 5 Expansion 9 Enbridge Line 6B Expansion 1 Enbridge Line 6C 11 Enbridge Line 9 Re-reversal 12 Portland Pipeline Reversal 13 Sunoco to Philadelphia 14 Enbridge Pioneer (Opt2) 15 Enbridge Eastern PADD II 16 Enbridge Pioneer (Opt 1) 17 ExxonMobil Mustang Expansion 18 Enbridge Spearhead Expansion (N/S) 19 Sunoco to US Gulf Coast 2 Enbridge/ExxonMobil Texas Access 21 ExxonMobil/Enbridge Pegasus Expansion 22 Centurion Pipeline Reversal 23 TEPPCO/Kinder Morgan Chinook - Maple Leaf 24 BP No. 1 Pipeline 25 TransCanada Keystone XL 26 Altex Energy 27 Kinder Morgan TMX2 28 Kinder Morgan TMX3 29 TransCanada Alberta-California 3 Enbridge Northern Gateway 31 Kinder Morgan TMX Northern Leg 32 Enbridge Gateway Condensate Import 33 Enbridge Southern Lights 34 Capline/Chicap 35 Enbridge North Dakota 36 Enbridge Light Sour Line CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS iv

6 CONTENTS 1 CRUDE OIL PRODUCTION AND SUPPLY FORECAST Introduction Methodology Canadian Crude Oil Production Western Canadian Crude Oil Production Oil Sands Conventional Crude Oil Production Western Canadian Crude Oil Supply Summary CRUDE OIL MARKETS Introduction Canada Western Canada Ontario Québec United States PADD I PADD II PADD III PADD IV PADD V Asia Summary CRUDE OIL SUPPLY FORECAST AND MARKET DEMAND Light Crude Oil Supply versus Market Demand Heavy Crude Oil Supply versus Market Demand Western Canadian Crude Oil Supply versus Market Demand CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS

7 4 CRUDE OIL PIPELINES Major Crude Oil Pipelines Existing Major Crude Oil Pipelines Crude Oil Transportation Requirements Canadian and U.S. Crude Oil Pipeline Expansions/Proposals Crude Oil Pipeline Expansions/Proposals to the U.S. Midwest, Ontario, Québec and the U.S. East Coast Crude Oil Pipeline Expansions/Proposals to the U.S. Gulf Coast Crude Oil Pipeline Expansions/Proposals to the West Coast Diluent Pipeline Proposals Summary CONCLUSIONS...28 APPENDICES Appendix A Acronyms, Abbreviations, Units and Conversion Factor Appendix B CAPP Canadian Crude Oil Production and Supply Forecast 28 to Appendix C Canadian and U.S. Crude Oil Pipeline Expansions/Proposals...34 Appendix D Crude Oil Pipelines and Refineries...37 CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS

8 1 CRUDE OIL PRODUCTION AND SUPPLY FORECAST CAPP s crude oil forecast has been prepared to provide industry and the public with a long-term outlook of Canadian production trends and available supply to markets. In addition, CAPP s forecast is used to determine crude oil pipeline capacity requirements to accommodate the expected growth in western Canadian crude oil supply. To complete the Canadian oil outlook, CAPP has also prepared a forecast of offshore eastern Canadian crude oil supply. 1.1 Introduction Since the publication of CAPP s June 27 forecast, there have been some significant changes to government policy. These changes include the Alberta Government s introduction of a new royalty structure to increase royalties for all existing and future oil, gas and oil sands production, effective January 29; the Federal Government s phased elimination of the accelerated capital cost allowance for oil sands projects; and both Federal and Provincial climate change initiatives. Nonetheless, more oil sands projects have been announced, which is indicative of industry s optimism surrounding Canada s oil sands opportunities. However, with new opportunities come many new challenges, such as environmental issues and increased time requirement for regulatory processes. In addition to addressing these emerging challenges, traditional challenges such as the limited availability of labour and materials and increasing costs have contributed to a lower forecast when compared to last year. CAPP has assumed that the current investment climate will remain relatively unchanged throughout the forecast timeframe so, any new changes could conceivably impact the production levels anticipated in this report. 1.2 Methodology CAPP conducted a survey of oil sands producers in early 28 to determine current and planned oil sands production of both bitumen and upgraded crude oil. However, additional adjustments to the survey results have been made to reflect historical performance trends of oil sands projects following start up. Also, some delays to the scheduled in service dates have been incorporated based on the status of the project. The majority of oil sands projects, particularly in situ operations, are executed in multiple phases. Historically, in situ projects require some time to ramp up to capacity while new mining projects typically require some fine tuning before capacity is maintained on a consistent basis. From the survey data, CAPP established the amount of upgraded crude oil and bitumen that could potentially be available to the market. A list of all publicly announced oil sands projects is available at The following assumptions have been used to determine available oil sands supply: a) All bitumen must be blended with either condensate or upgraded crude oil prior to being transported by pipeline. b) Condensate is the preferred diluent over upgraded crude oil. 1 CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS

9 c) Prior to the in service of Enbridge s Southern Lights diluent import pipeline in July 21, the amount of western Canadian condensate production plus railed imports is not sufficient to blend with expected bitumen production and, therefore, some producers will blend their bitumen with upgraded crude oil to meet pipeline specifications. d) Following 21, Southern Lights imports will be capable of providing additional diluent to western Canadian producers; however, some producers may continue to use some upgraded crude oil to blend with bitumen. The forecast for conventional production was based on historical trends and recent announcements. CAPP has not surveyed conventional crude oil producers. CAPP has prepared two cases, the Moderate Growth Case and the Pipeline Planning Case. The Moderate Growth Case represents the expected outlook. The more aggressive, Pipeline Planning Case has been developed for pipeline planning purposes, and accounts for higher production rates arising from operating experience and technology improvements. 1.3 Canadian Crude Oil Production CAPP s forecast includes production from the Western Canada Sedimentary Basin (WCSB) and offshore eastern Canada. Overall, both light and heavy conventional production in the WCSB is declining, while development in the oil sands is escalating. Western Canadian crude oil production averaged 2.4 million b/d in 27 and is projected to grow significantly over the forecast period due to the oil sands. East Coast crude oil production is forecast to begin declining this year and a steep decline, relative to the decline in conventional production, is expected in the long term. In 27, East Coast production was 369, b/d, which equaled about 13 percent of total Canadian crude oil production of 2.8 million b/d. The forecast is lower than last year s forecast for East Coast production due to higher decline rates. In the Moderate Growth Case, total Canadian crude oil production is projected to rise from 2.8 million b/d in 27 to about 3.9 million b/d in 215 and to 4.5 million b/d in 22 (Figure 1.1). In the Pipeline Planning Case, total Canadian crude oil production is forecast to grow from 2.8 million b/d in 27 to about 4.3 million b/d in 215 and to over 5. million b/d in 22 (Figure 1.2). The growth in the forecast is attributable to increasing production from the oil sands, which more than offsets the continued decline in conventional oil production. Figure 1.1 Moderate Growth Case Canadian Oil Sands & Conventional Production 6, 5, 4, 3, 2, 1, ACTUAL FORECAST 27 Forecast East Coast In Situ Mining Conventional Heavy Conventional Light Pentanes Figure 1.2 Pipeline Planning Case Canadian Oil Sands & Conventional Production 6, 5, 4, 3, 2, 1, ACTUAL FORECAST 27 Forecast East Coast In Situ Mining Conventional Heavy Conventional Light Pentanes CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS 2

10 1.4 Western Canadian Crude Oil Production In 27, almost 9 percent of all Canadian crude oil production came from western Canada. Western Canadian crude oil production is comprised of conventional oil and oil sands production. Conventional crude oil production had exceeded oil sands production until 26, at which time oil sands production reached over 1.1 million b/d and surpassed conventional production. Total western Canadian crude oil production in 27 was almost 2.4 million b/d and is projected to increase to about 4.4 million b/d in 22 in the Moderate Growth Case and to 5. million b/d in the Pipeline Planning Case as shown in Table 1.1. Table 1.1 Western Canadian Crude Oil Production (million b/d) Moderate Growth Case Pipeline Planning Case Oil Sands The three main oil sands deposits are located in the Peace River, Athabasca and Cold Lake areas in the province of Alberta (Figure 1.3). The Alberta Energy Resources and Conservation Board (ERCB) estimated that these areas contain an ultimately recoverable Figure 1.3 Oil Sands Deposits Peace River Peace River deposit Athabasca deposit Edmonton Fort McMurray Calgary Area of Potential Cold Lake deposit Lloydminster resource of 315 billion barrels, with remaining established reserves of 173 billion barrels as at year-end 27. There are also smaller deposits in northwest Saskatchewan, next to the Athabasca oil sands deposit. The Saskatchewan Ministry of Energy and Resources has estimated 2.7 million hectares of potential land, but the resource base has not been officially determined. Bitumen is primarily extracted from the oil sands using either surface mining or in situ techniques. In areas where the oil is located near the surface, open pit mining is the most efficient method; however, to recover oil that is located further below the surface (i.e. more than 75 metres, according to Alberta Energy), in situ thermal extraction techniques such as Steam Assisted Gravity Drainage (SAGD) and Cyclic Steam Stimulation (CSS) are employed. Of the remaining established reserves, 141 billion barrels, or 82 percent, is considered recoverable by in situ methods and 31 billion barrels from surface mining. Currently, all of the mined bitumen is upgraded as part of an overall integrated operation. This trend of upgrading mined bitumen is expected to continue throughout the forecast period for most of the projects. In contrast, the majority of in situ bitumen production is not upgraded prior to transporting it to market. This trend, however, will change as more in situ production will be coupled with upgrading projects. The first is OPTI- Nexen s Long Lake project, which is currently producing bitumen, but is scheduled to come on stream with synthetic production later this year. The production from integrated upgrading projects will be augmented by merchant upgrading projects of which there are several in various stages of planning and development. CAPP has included the contribution of merchant upgrading in its supply forecast, which is discussed in the Western Canadian Crude Oil Supply section. Oil sands production currently makes up just over half of western Canada s total crude oil production, and is expected to grow from roughly 1.2 million b/d in 27 to approximately 2.8 million b/d in 215 and to about 3.5 million b/d in 22 in the Moderate Growth Case. In 27, about 666, b/d was recovered from mining, which is slightly more than half of the total oil sands production (Figure 1.4). 3 CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS

11 Figure 1.4 Moderate Growth Case Western Canada Oil Sands & Conventional Production Figure 1.5 Pipeline Planning Case Western Canada Oil Sands & Conventional Production 6, ACTUAL FORECAST 6, ACTUAL FORECAST 5, 5, 4, 27 Forecast 4, 27 Forecast 3, 3, 2, 2, 1, 1, In Situ Mining Conventional Heavy Conventional Light Pentanes In Situ Mining Conventional Heavy Conventional Light Pentanes The Moderate Growth Case is based on the assumption that oil sands projects will be developed and brought into service at a gradual pace, which is expected based on historical and current trends. There are many other factors that could impact optimal performance such as cost increases and availability of labour and materials. The timing of resolving environmental issues also creates uncertainty. In the Pipeline Planning Case, oil sands production is expected to grow from roughly 1.2 million b/d in 27 to approximately 3.1 million b/d in 215 and to about 4.1 million b/d in 22 (Figure 1.5). This case projects that the timing between phases will be less than the Moderate Growth Case Conventional Crude Oil Production Conventional crude oil production in western Canada has been declining gradually since the late 199s as a result of the maturity of the basin. By 22, total conventional crude oil production declines to about 75, b/d, almost 3 percent less than the current level of over 1 million b/d. Recent trends indicate that the year-over-year decline rate for conventional crude oil production has slowed somewhat due to high crude oil prices and, in fact, has increased slightly in Manitoba and Saskatchewan. In Manitoba, production rose 16 percent in 27. However, it should be noted that the Sinclair field, which was designated in 25, and the first major discovery in Manitoba in many years, accounted for 3 percent of that province s crude oil production. Production is, however, expected to start declining within the next 2 to 3 years as the basin matures. Industry optimism over Saskatchewan s oil prospects appears strong as evidenced by the land sale revenue of $463 million from January to April 28 compared to $99 million during the same period in 27. Saskatchewan production of light crude oil is expected to continue increasing modestly for the next few years. The Bakken oil field in south east Saskatchewan, touted as the largest conventional oil discovery in Canada since 1957, continues to generate strong interest. The growth in Saskatchewan light crude oil production can be attributed to the high drilling and production from the Bakken field. The decline in heavy crude oil production in Saskatchewan has been offset somewhat by the production from the Lower Shaunavon field. The Shaunavon formation has been known since the 195s and is difficult to extract oil from, but there has been renewed interest with continued high oil prices. With no new discoveries in Alberta and British Columbia, conventional production continues to decline steadily in these provinces. CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS 4

12 1.5 Western Canadian Crude Oil Supply The general types of crude oil produced from oil sands bitumen are upgraded crude oil and bitumen blend. A typical example of an upgraded light crude oil would be Syncrude s Sweet Blend (SSB), which has a density of about 87 kg/m 3 (31 API) and a sulphur content of.12 percent. Last year, the CAPP forecast separated the volume of bitumen diluted with upgraded light from the volumes of upgraded heavy and bitumen diluted with condensate. In this report, these crude types have been grouped together and are collectively referred to as Bitumen Blend. This representation intends to present a more useful supply picture since it is not possible to accurately determine the volume of bitumen blended with upgraded light. Furthermore, these volumes are likely to be less significant than originally anticipated. Bitumen is generally blended with condensate such as pentanes plus, which is mainly recovered from processing natural gas. An example would be Cold Lake crude, which has a density of about 93 kg/m 3 (21 API) and a sulphur content of 3.6 percent. Heavy crude oil and bitumen must be blended with diluent to meet pipeline specifications for density and viscosity. Currently, the main source of diluent is natural gas condensates that are produced in western Canada. In the future, this diluent supply will not be sufficient to meet the needs of growing bitumen production. As a result, producers are considering imports of condensate or other diluents by pipeline as well as the use of upgraded crude oil. Blending with condensate requires three parts bitumen and one part condensate. With the use of upgraded light crude as the diluent, the ratio changes to roughly 5:5. As noted earlier, locally produced condensate is no longer sufficient and, in fact, companies have imported up to 5, b/d of diluent into Alberta by rail in 27. To meet growing diluent demand, Enbridge is planning to construct the Southern Lights diluent pipeline from Chicago to Alberta. It is expected to be in service in July 21, and will have the potential to supply up to 18, b/d of diluent. Table 1.2 Western Canadian Crude Oil Supply Figure 1.6 Moderate Growth Case Western Canadian Crude Oil Supply 6, 5, 4, 3, 2, 1, ACTUAL FORECAST 27 Forecast Bitumen Blend* Upgraded Light Conventional Heavy Conventional Light (million b/d) Moderate Growth Case Pipeline Planning Case Table 1.2 shows the total western Canadian crude oil supply projections for both the Moderate Growth Case and the Pipeline Planning Case. In the Moderate Growth Case, upgraded light crude oil supply is projected to grow from about 65, b/d in 27 to 1.5 million b/d in 215 and 1.8 million b/d by 22. The supply of upgraded light crude oil could increase in the event that additional amounts of diluent are imported which would result in less upgraded light crude oil used as a diluent. Bitumen Blend, which makes up the heavy crude oil supply from the oil sands, is forecast to increase from 83, b/d in 27 to 1.6 million b/d in 215 and up to 2. million b/d in 22 (Figure 1.6). * Bitumen blend includes bitumen blended with diluent or upgraded crude oil and some volumes of upgraded heavy sour crude oil 5 CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS

13 In the Pipeline Planning Case, there is more production of upgraded crude oil and bitumen, resulting in a higher Bitumen Blend volume than the Moderate Growth Case. The supply of upgraded light crude oil is forecast to grow from 65, b/d in 27 to 1.6 million b/d by 215 and to 2. million b/d by 22. Bitumen Blend grows from 83, b/d in 27 to 1.9 million b/d in 215 and up to 2.4 million b/d in 22. It is assumed that growing bitumen production in this case will require additional diluent imports beyond pipeline capacity in 217 (Figure 1.7). In summary, western Canadian crude oil supply will increase from 2.4 million b/d in 27 to 4.5 million b/d in 22 in the Moderate Growth Case while in the Pipeline Planning Case, supply rises to 5.1 million b/d. The primary reason for the difference is the pace of ramp up of the projects and the variation in the delays between project phases. In other words, it takes longer for the projects to reach design capacity in the Moderate Growth Case. The outlook for western Canadian crude oil production remains promising. Figure 1.7 Pipeline Planning Case Western Canadian Crude Oil Supply 6, ACTUAL FORECAST 5, 27 Forecast 4, 3, 2, 1, Bitumen Blend* Upgraded Light Conventional Heavy Conventional Light * Bitumen blend includes bitumen blended with diluent or upgraded crude oil and some volumes of upgraded heavy sour crude oil 1.6 Summary Eastern Canadian crude oil supply is expected to start declining starting in 28. The decrease in supply is greater than in last year s report due to a higher decline rate. In both cases, CAPP projects significant growth in oil sands supply, although at a slower pace than CAPP s 27 forecast. In this year s Moderate Growth Case, oil sands supply of 1.5 million b/d in 27 grows by 2.4 million b/d by 22, while in the Pipeline Planning Case, supply increases by 3. million b/d. Although some growth is expected in the short-term in Manitoba and Saskatchewan, total conventional crude oil supply from 27 to 22 falls by 34, b/d in both Cases. CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS 6

14 2 CRUDE OIL MARKETS CAPP is of the view that it is necessary to review the market potential to process the expected growth in oil sands supply. This assessment will, as well, assist industry in the development of adequate pipeline infrastructure. In this context, CAPP surveyed the majority of North American refineries (western Canada, Ontario, PADDs II and IV, and Washington State) to obtain information on their ability or plans to process increasing volumes of western Canadian crude oil and, in particular, oil sands to Introduction CAPP did not put any constraints on the data submitted by refiners nor did it prepare any alternate cases. CAPP did not survey refineries located in Québec, eastern PADD I, PADD III or California; however, discussions with these refiners indicate that a significant potential exists, and this is supported by the numerous pipeline proposals. The CAPP refinery survey assessed four types of western Canadian crude oil. They are: 1. Conventional Light Sweet (3º to 4º API, less than.5% S) including condensates and pentanes plus; 2. Heavy (equal to or less than 27º API) and includes synthetic sour, DilBit, SynBit and DilSynBit); 3. Conventional Medium Sour (greater than 27º API and.5% S); and 4. Light Sweet Synthetic. and the ExxonMobil (Pegasus) pipeline in early 26, western Canadian crude oil is delivered to the Cushing, Oklahoma hub and the U.S. Gulf Coast, respectively. 2.2 Canada Canadian refineries that have access to western Canadian crude oil have a refining capacity of almost 1 million b/d. In 27, these refineries processed about 825, b/d of western Canadian crude oil. The survey results project that this will increase to approximately 1 million b/d in 21 and with refinery expansions to almost 1.1 million b/d in 214. (Figure 2.1) Figure 2.1 Forecast Canadian Refinery Receipts of Western Canadian Crude Oil 1,2 1, Total refining capacity 993 kb/d In 27, available supply of crude oil from western Canada was over 2.4 million b/d. Domestic demand for western Canadian crude oil was approximately 825, b/d and the remaining supply of over 1.6 million or 65 percent was exported. The primary markets for western Canadian crude oil are: British Columbia; Alberta; Saskatchewan; Ontario; northern PADD II (i.e. Chicago, Twin Cities and Toledo); PADD IV; and Washington State. With the reversal of the Enbridge Spearhead pipeline Light Synthetic Heavy Conventional Medium Sour Conventional Light Sweet 7 CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS

15 2.2.1 Western Canada There are eight refineries located in western Canada with a total refining capacity of about 613, b/d, and they process exclusively western Canadian crude oil. The Moose Jaw asphalt plant in Moose Jaw, Saskatchewan produces only asphalt but the rest manufacture a wide range of petroleum products. In 27, they refined about 578, b/d and this, according to the survey, is expected to increase to 665, b/d in 21, and remain relatively flat through 212. Subsequently, receipts are expected to rise to 695, b/d in 213 and reach 72, b/d in 215. (Figure 2.2) Ontario There are four refineries (excludes Nova Chemicals Sarnia facility) located in Ontario with a total refining capacity of almost 385, b/d. These refineries process both western Canadian crude oil as well as crude oil (imports and eastern Canadian crude oil production) that is received by tankers from the Portland-to-Montréal pipeline and, subsequently, the Enbridge Montréal-to-Sarnia pipeline (Line 9). Ontario refineries have, for a number of years, based their feedstock sourcing on both availability and pricing. (Figure 2.3) Figure 2.2 Western Canada Forecast Western Canadian Crude Oil Receipts Figure 2.3 Ontario Forecast Western Canadian Crude Oil Receipts 8 7 Total refining capacity 613 kb/d 4 35 Total refining capacity 385 kb/d Light Synthetic Heavy Conventional Medium Sour Conventional Light Sweet Light Synthetic Heavy Conventional Medium Sour Conventional Light Sweet Receipts of conventional light sweet crude oil are expected to fall, in part, due to the maturity of the basin as well as refinery conversions; for example, the conversion of Petro-Canada s Edmonton refinery in the fourth quarter 28 to process 1 percent oil sands feedstocks. Receipts of heavy and light synthetic crude oils are expected to increase throughout the forecast period. Consumers Co-operatives is currently assessing a 3, b/d expansion of its Regina refinery that could start up in 211 and would use upgraded light crude oil feedstock. There are proposals to upgrade bitumen at the mining projects as well as a number of merchant upgrader proposals located in Fort Saskatchewan, Alberta. In 27, Ontario refineries processed almost 38, b/d of which 65 percent or about 247, b/d was from western Canada. Receipts of western Canadian crude oil are projected to rise to 365, b/d or 94 percent of refining capacity by Québec The two refineries located in Montréal have a total refining capacity of 26, b/d, and a refinery in Québec City has a capacity of 215, b/d. The Montréal refineries process both eastern Canadian and foreign crude oil, which is received from the Portlandto-Montréal pipeline. If Enbridge s Line 9 pipeline is re-reversed, the Montréal market would provide western Canadian crude oil producers with a new outlet for their CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS 8

16 production. Petro-Canada is considering adding a 25, b/d coker to its refinery in Montréal, which would displace some light crude oil with heavy crude oil. A decision on installing a coker is expected in June 28 with a potential in service date in United States The United States, with a refining capacity of approximately 17 million b/d, is Canada s largest market for crude oil exports. In 27, Canada was the largest exporter of crude oil to the U.S, ahead of both Mexico and Saudi Arabia. Canada exported over 1.8 million b/d, which was equivalent to almost 19 percent of total U.S. demand; of this volume, 1.6 million b/d was sourced from western Canada. The refiner survey results show exports from western Canada to the U.S. growing to 2.5 million b/d in 211 and to 2.9 million b/d in 215 (Figure 2.4). The major growth is expected to be heavy crude oil. The rise in crude oil exports to the United States, in CAPP s view, reflects various drivers, such as; Canada s proximity to the United States; geopolitical stability; and security of supply for Canada and the United States. Figure 2.4 Forecast Western Canadian Crude Oil Exports to the U.S. (includes Western PADD I, PADD II, PADD IV & Washington) 3,5 3, 2,5 2, 1,5 1, 5 Total refining capacity 4,867 kb/d Light Synthetic Heavy Conventional Medium Sour Conventional Light Sweet PADD I PADD I is located along the east coast of the United States with refineries in Delaware, New Jersey, Pennsylvania, Virginia and West Virginia. There are 13 refineries with a total capacity of over 1.6 million b/d. In 27, refinery runs in this market consisted of 63 percent light sweet crude oil, 24 percent heavy crude oil and 13 percent medium sour crude oil (Figure 2.5). Figure 2.5 PADD I Historical Imported Crude Oil ,8 1,6 1,4 1,2 1, Total refining capacity 1,627 kb/d Heavy Light/Medium Sour Light Sweet In 27, 17 percent of refinery runs in PADD I were Canadian sourced crude oil. Receipts of Canadian crude oil, including offshore East Coast, were 256, b/d with just 24 percent or 6, b/d from western Canada. These receipts were delivered by pipeline to the United refinery in Warren, Pennsylvania with the bulk of it being heavy crude oil. There is a possibility that the existing market may convert to heavy crude oil in 212 (Figure 2.6). Without additional access to this market, western Canadian crude oil deliveries are expected to remain relatively flat through 215. PADD I refineries have a huge potential to process western Canadian crude oil by displacing imports of foreign crude oil, in particular, light sweet crude oil. There are, in fact, pipeline proposals to serve this market with western Canadian crude oil PADD II PADD II, located in the U.S. Midwest, has historically been the largest market for western Canadian crude oil, and it has a refining capacity of 3.6 million b/d. In 27, PADD II processed about 1.1 million b/d of western Canadian crude oil, and this is projected, according to the refiner survey, to grow to almost 2.4 million b/d in 215, an increase of almost 12 percent. The forecasted receipts of western Canadian crude oil in CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS

17 Figure 2.6 PADD I Forecast Western Canadian Crude Oil Receipts Total refining capacity 1,627 kb/d Light Synthetic Heavy Figure 2.7 PADD II Forecast Western Canadian Crude Oil Receipts 3,5 3, 2,5 Total refining capacity 3,622 kb/d Conventional Medium Sour Conventional Light Sweet northern PADD II is 1.9 million b/d, and the Illinois/ Indiana area makes up 61 percent of the region s refining capacity followed by Minnesota with 19 percent. In 27, imports into northern PADD II were 1. million b/d and western Canadian crude oil accounted for 95 percent of those imports. Imports of western Canadian crude oil are expected to grow to almost 1.4 million b/d in 21 and to about 1.9 million b/d in 215, a 9 percent increase in comparison to 27 (Figure 2.8). Historically, western Canadian heavy crude oil was the feedstock of choice; and, in 27, it approximated 6, b/d or 62 percent of total western Canadian crude oil refined in that area. Receipts of heavy crude oil are projected to rise up to 1.5 million b/d in 215. The large growth in heavy crude oil reflects certain refiners expectations to add conversion capacity and, therefore, reduce receipts of U.S. domestic or imports from the U.S. Gulf Coast. Western Canadian conventional medium sour crude oil receipts are forecasted to rise slightly. Light synthetic crude oil is projected rise moderately and remain flat at about 137, b/d through , 1,5 Figure 2.8 PADD II (North) Forecast Western Canadian Crude Oil Receipts 1, 5 2, 1,8 1,6 Total refining capacity 1,934 kb/d Light Synthetic Heavy Conventional Medium Sour Conventional Light Sweet 1,4 1,2 1, 8 6 equals about 67 percent of current refining capacity (Figure 2.7). As discussed later in the report, however, the anticipated large growth in western Canadian crude oil production means that producers have to look beyond the markets they have historically served and actively seek access to new markets. For purposes of this report, PADD II has been divided into north, east and south. Northern PADD II Northern PADD II has 11 refineries located in Illinois, Indiana, Minnesota, North Dakota, Ohio (Toledo) and Wisconsin and they run predominantly heavy crude oil which reflects their complexity. Total refining capacity in Light Synthetic Heavy Conventional Medium Sour Conventional Light Sweet Includes refineries in Illinois, Indiana, Kentucky, Michigan, Minnesota, North Dakota, Ohio and Wisconsin Eastern PADD II Eastern PADD II is located east of Chicago and Patoka, but excludes Toledo, Ohio which is considered an existing market in northern PADD II. Eastern PADD II has a refining capacity of 717, b/d and, in 27, western Canadian crude oil accounted for only 13 percent or 9, b/d of that capacity. Receipts of light synthetic CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS 1

18 crude oil are expected to increase in 29 and 21 then decline. Heavy crude oil deliveries are expected to grow from 37, b/d in 27 to 15, b/d in 211, and then rise to 225, b/d in 214. Proposed expansions and conversions, if they proceed, will result in higher runs of western Canadian heavy crude oil in the next several years (Figure 2.9). Figure 2.1 PADD II (South) Forecast Western Canadian Crude Oil Receipts Total refining capacity 971 kb/d Figure 2.9 PADD II (East) Forecast Western Canadian Crude Oil Receipts Total refining capacity 717 kb/d Heavy Conventional Medium Sour Conventional Light Sweet Includes refineries in Kansas, Oklahoma and Tennessee Light Synthetic Heavy Includes refineries in Illinois, Kentucky, Michigan and Ohio Conventional Medium Sour Conventional Light Sweet Southern PADD II The nine refineries in southern PADD II are located in Kansas, Oklahoma and Tennessee, and have a total refining capacity of 971, b/d. With the reversal of the Enbridge Spearhead pipeline in March 26, western Canadian producers are able to deliver up to 125, b/d of crude oil into Cushing, Oklahoma. Spearhead pipeline has been at capacity and, recently, Enbridge announced a successful open season to expand the capacity to 19, b/d in the third quarter 29. Access to the Cushing market offers western Canadian crude oil producers opportunities to penetrate other markets (e.g. PADD III) through existing pipelines. According to the refiner survey, this market is not expected to be a large growth area for western Canadian crude oil. In 27, this market processed about 6, b/d of western Canadian crude oil, and this is projected to rise to almost 9, b/d in 213 (Figure 2.1) PADD III PADD III, comprising of Alabama, Arkansas, Louisiana, Mississippi, New Mexico and Texas, is the largest and most complex refining district in the United States and has 49 refineries. Total refining capacity approximates 8 million b/d, of which a significant portion has heavy crude oil processing capabilities. In recent years, PADD III refineries have added several new cokers. These additions allow refineries to run heavier and more sour grades of crude oil which are becoming increasingly more predominant in the world s oil production slate. In 27, PADD III imported 5.6 million b/d of crude oil, and over 2.4 million b/d of that was heavy crude oil. It imports crude oil from Mexico (24 percent), Venezuela (18 percent), Saudi Arabia (15 percent) and Nigeria (11 percent), and it also imported from 33 other countries. Deliveries of western Canadian crude oil commenced in April 26 through the reversed ExxonMobil pipeline (Pegasus) from Patoka, Illinois to Corsicana, Texas. The pipeline is operating at its capacity of about 66, b/d. Due to its size and ability to run heavy crude oil, PADD III is currently the largest untapped market for western Canadian crude oil producers. As a result, there are several pipeline proposals to access this market with western Canadian crude oil. Although a number of the cokers in PADD III were originally dedicated to specific 11 CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS

19 supply sources, such as Venezuela, these contracts are expected to expire in the near future providing western Canadian crude oil producers with a significant opportunity, particularly for heavier grades (Figure 2.11). Figure 2.12 PADD IV Forecast Western Canadian Crude Oil Receipts 6 5 Total refining capacity 598 kb/d Figure 2.11 PADD III Historical Imported Crude Oil , 6, 5, Total refining capacity 7,99 kb/d , 3, 2, Light Synthetic Heavy Conventional Medium Sour Conventional Light Sweet 1, Heavy Light/Medium Sour Light Sweet PADD IV PADD IV which includes Colorado, Montana, Utah, Wyoming and Idaho is the smallest of the Districts, and accounts for about three percent of total crude oil consumption. It has 16 refineries located in four of the five states (there are no refineries in Idaho), and has a total refining capacity of 598, b/d. Although PADD IV is smaller than the other core markets, it has been a consistent market for western Canadian crude oil supply. Until recent crude oil production increases in certain areas of PADD IV, it has increasingly processed western Canadian crude oil. In 27, PADD IV processed 28, b/d of Canadian crude oil or 47 percent of its feedstock requirements. There are no other crude oil imports into this market, outside of Canadian, due to the lack of alternative crude oil accessibility. In 28, western Canadian crude oil receipts are forecasted to increase to 3, b/d and remain at this level through 211, and then increase to about 31, b/d for the remainder of the forecast period. The growth occurs in heavy crude oil receipts and increases from 177, b/d in 27 to about 2, b/d in 212 (Figure 2.12). Although PADD IV has experienced some demand growth, the lack of expected population growth, combined with the dispersed nature of the population provides for limited opportunities to increase western Canadian crude oil deliveries. Future opportunities for western Canadian crude oil will rely on the replacement of declining domestic supply combined with backfilling any small growth in refinery capacity PADD V PADD V includes Alaska, Washington, Oregon, California, Nevada, Arizona and Hawaii. The majority of PADD V is geographically divided from the rest of the United States by the Rocky Mountains, and has very good access to tanker traffic, including proximity to Alaskan and offshore California crude oil production. It, therefore, results in the region being relatively independent from the rest of the country for its sources of domestic crude oil supply, but it does import about 36 percent of its requirements. For purposes of this report, PADD V has been divided into two market regions: Washington and California. These two states account for 83 percent of the 3.2 million b/d of refining capacity, and they represent both the current demand and future prospects for western Canadian crude oil (Figure 2.13). CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS 12

20 Figure 2.13 PADD V (California & Washington) Historical Imported Crude Oil ,5 Total refining capacity 2,646 kb/d 2, Figure 2.14 PADD V (Washington) Forecast Western Canadian Crude Oil Receipts 6 5 Total refining capacity 624 kb/d 1,5 1, Heavy Light/Medium Sour Light Sweet Light Synthetic Heavy Conventional Medium Sour Conventional Light Sweet Washington There are five refineries in Washington with a capacity of almost 624, b/d and they primarily process medium sour crude oil. These refineries have historically sourced their feedstocks from Alaska, and it currently accounts for approximately 7 percent of their runs. Washington has historically been a small but important niche market for western Canadian crude oil, particularly conventional light sweet. In 27, western Canadian crude oil accounted for about 18 percent of imports into Washington while the remainder of its requirements is sourced primarily from the Persian Gulf. Receipts of western Canadian crude oil are estimated to increase by over 15 percent from 11, b/d in 27 to almost 126, b/d in 28 or about 2 percent of refining capacity. Conventional light sweet crude oil will continue to be the predominant feedstock growing from about 45, b/d in 27 to 66, b/d in 21 and remaining flat thereafter. Heavy crude oil demand is estimated to increase marginally from 29, b/d in 27 to about 43, b/d in 21 and maintain that level through 215 (Figure 2.14). Conventional medium sour crude oil is also expected to rise marginally over the next few years while light sweet synthetic crude oil receipts are expected to remain relatively flat. The Washington market has the potential to process additional volumes of western Canadian crude oil as result of the ongoing decline in Alaskan North Slope (ANS) crude oil production. Pipeline constraints may be an issue; however, Trans Mountain s TMX1 program will add about 4, b/d in November 28. California California has 21 refineries with a refining capacity of over 2 million b/d. Most of the refineries are located in two regions (Los Angeles and San Francisco) and account for approximately 95 percent of the state s refining capacity. California s refineries are highly complex with extensive upgrading capabilities, in part, due to having the strictest environmental requirements in the United States for refined petroleum products (Figure 2.15). 13 CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS

21 Figure 2.15 PADD V (California) Historical Imported Crude Oil , 1,8 1,6 1,4 1,2 1, 8 6 Total refining capacity 2,22 kb/d Since May 27, Canada s oil exports averaged 26,8 b/d to this market in 27 and of this total, 21,3 b/d was sourced from western Canada. This market has the potential to process significant Canada s oil sands production. In fact, some of these countries are currently involved in oil sands development while others are considering acquisitions. In addition, some proponents are proposing pipelines to the west coast of British Columbia to serve this market Heavy Light/Medium Sour Light Sweet Refineries in California have primarily processed medium sour and heavy crude oils. Last year, California refineries received almost two-thirds of their supply from domestic sources, and ANS accounted for approximately 85 percent. The remainder is sourced from Saudi Arabia (25 percent), Ecuador (19 percent), and Brazil (8 percent) while Canada accounted for two percent of imports. California s traditional domestic crude oil supply sources are forecasted to fall by three to five percent per year and, as a result, it will become increasingly reliant on imports of foreign crude oil. Given Canada s proximity and forecasted growth in crude oil supply, this market represents a significant opportunity for western Canadian crude oil producers. Currently, however, pipeline capacity to the west coast of British Columbia is limited and there is no overland route available. However, there are pipeline proposals to serve this market. 2.5 Summary Demand according to the unadjusted refiner survey for western Canadian crude oil by Canadian refineries is expected to rise from 825, b/d in 27 to almost 1.1 million b/d in 215, a 29 percent increase. As expected, the majority of the growth will be heavy and light synthetic crude oils. Over the same period, demand by refiners in surveyed markets in the United States is projected to increase by over 8 percent from about 1.6 million b/d to over 2.9 million b/d. Demand for heavy crude oil is by far the largest. The refinery survey results indicate that traditional markets (i.e. western Canada, Ontario, upper PADD II, PADD IV and Washington State) will continue to process large volumes of western Canadian crude oil with the potential for expansions into new markets such as Québec, eastern PADD I, eastern PADD II, PADD III, California and the Far East. 2.4 Asia The Asian market has attracted significant interest in the last few years because of its rising demand for energy and this is expected to continue. The U.S. Energy Information Administration (EIA) forecasts that demand will increase from 23.3 million b/d in 24 to 32.7 million b/d in 22, a 4 percent increase. It also projects that demand in China will grow from 6.4 million b/d in 24 to 11.9 million b/d in 22, a growth of over 85 percent. CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS 14

22 3 CRUDE OIL SUPPLY FORECAST AND MARKET DEMAND The following three graphs illustrate CAPP s western Canadian crude oil supply forecast in the Pipeline Planning Case in comparison to the unadjusted CAPP refiner survey. 3.1 Light Crude Oil Supply versus Market Demand During the period from 27 to 211, inclusive demand, based on the unadjusted refiner survey, for western Canadian light crude oil exceeds supply slightly while post-212 supply continues to rise while demand is relatively flat (Figure 3.1). Figure 3.1 Western Canadian Light Supply* vs Market Demand** 3,5 3, 2,5 2, 1,5 1, Light Supply Market Demand * Pipeline Planning Case ** Includes light sweet synthetic, conventional light sweet and medium sour 3.2 Heavy Crude Oil Supply versus Market Demand Demand for western Canadian heavy crude oil is essentially balanced with supply to 29 and then demand exceeds supply. The growing demand for heavy crude oil reflects the number of refinery conversions that are announced in markets that were surveyed. CAPP understands that some of these conversion proposals are in the concept phase and, therefore, may not proceed (Figure 3.2). Figure 3.2 Western Canadian Heavy Supply* vs Market Demand 3,5 3, 2,5 2, 1,5 1, Heavy Supply * Pipeline Planning Case Market Demand 15 CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS

23 3.3 Western Canadian Crude Oil Supply versus Market Demand In total, the aggregated results of the unadjusted CAPP refiner survey are above CAPP s western Canadian crude oil supply forecast in the Pipeline Planning Case through 213, and then slightly below the supply forecast (Figure 3.3). Figure 3.3 Western Canadian Crude Oil Supply* vs Market Demand 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1, Total Supply * Pipeline Planning Case Total Demand CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS 16

24 4 CRUDE OIL PIPELINES The Crude Oil Production and Supply section discusses the significant growth in the oil sands that is expected through 22 while the Oil Markets section illustrates that additional pipeline infrastructure will be required to meet increasing refinery demand. This section will focus on current pipeline infrastructure and proposed expansions to meet growing oil sands supply and increasing market demand. 4.1 Major Crude Oil Pipelines Historically, major Canadian crude oil pipelines such as Enbridge Pipelines and Kinder Morgan s Trans Mountain pipeline operated as common carriers. The exceptions are Kinder Morgan s Express pipeline and Enbridge s Line 9 (Montréal, Québec to Sarnia, Ontario) that operate as contract carriers (i.e. require long-term take-or-pay commitments). On common carrier pipelines, shippers nominate monthly for space, without a contract. In the future, the TransCanada Keystone pipeline will be a contract carrier while Enbridge Northern Gateway, Enbridge/ExxonMobil Texas Access, Altex Energy Ltd. and the Kinder Morgan/TEPPCO Chinook/Maple Leaf projects are proposing contract carriage in order to determine that there is sufficient long-term support. As well, some pipelines are offering equity positions in their pipelines Existing Major Crude Oil Pipelines Western Canadian crude oil is delivered to markets or other pipelines by three major Canadian trunklines Enbridge, Kinder Morgan s Trans Mountain and Express pipelines. Table 4.1 shows the estimated current crude oil capacity of these trunklines. Table 4.1 Estimated Capacity of Major Canadian Trunk Lines Pipeline Crude Estimated Quality Annual Capacity (thousand b/d) Enbridge light 58 heavy 1,153 Express light/heavy (35/65) 282 Trans Mountain light/heavy (8/2) 285 TOTAL 2,3 Enbridge Pipelines The Enbridge system which operates in Canada and the U.S. is the world s longest crude oil pipeline. It can deliver more than 2 million b/d of crude oil and other commodities from western Canada to other markets in western Canada, the U.S. upper Midwest and Ontario. In addition, it connects to various pipelines in the U.S. such as Spearhead and Mustang. It also receives crude oil from U.S. pipelines for deliveries to markets in the U.S. Midwest and Ontario. 17 CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS

25 In 27, Enbridge added about 45, b/d of capacity downstream of Superior, Wisconsin while no additional capacity was added upstream of Superior. In April 28, Enbridge completed Stage 1 of the Southern Access program (Line 61) from Superior to Delavan adding about 46, b/d of capacity, while the remainder of Line 61 to Flanagan is expected to be completed in the second quarter 29 with a capacity of 4, b/d. Kinder Morgan Trans Mountain Pipeline The Trans Mountain system originates in Edmonton, Alberta and transports crude oil to the Vancouver area, including its Westridge dock for vessel or barge loadings, and by pipeline to refineries in Washington State. The system also ships refined petroleum products from the Edmonton refineries to Kamloops, British Columbia and Vancouver. It can currently transport about 285, b/d with 2 percent heavy crude oil. The capacity, however, varies depending on the amount of heavy crude oil transported, and it is currently shipping about 25 percent heavy crude oil. In April 27, it completed the Pump Station Expansion (PSE) which added about 35, b/d of capacity. In May 28, the first phase of the Anchor Loop Expansion (ALE) was put in service adding 25, b/d of new capacity. In November 28, the final 15, b/d of the Anchor Loop Expansion will be completed. Kinder Morgan Express-Platte Pipelines The Express pipeline ships crude oil from Hardisty, Alberta to PADD IV and has a capacity of 282, b/d. The pipeline is underpinned by contracts totaling 231, b/d with the remaining space for spot shippers. Express is connected to Platte pipeline at Casper, Wyoming which extends to Guernsey, Wyoming and then to Wood River, Illinois. Capacity from Guernsey to Wood River is about 143, b/d and because of strong demand, it has been allocating line space since January 27. Therefore, Express is not operating at capacity due to insufficient capacity on the Platte system. Enbridge Spearhead Pipeline The Spearhead pipeline is connected to the Enbridge Lakehead system at the Enbridge Griffith terminal (near Chicago), and delivers crude oil to Cushing, Oklahoma. The pipeline was reversed in March 26 with an initial capacity of 13, b/d, and has the capability to move light and heavy crude oil. ExxonMobil/Enbridge Mustang Pipeline The Mustang pipeline is jointly owned by Enbridge Pipelines and ExxonMobil. Mustang connects to the Enbridge Lakehead system at Lockport, Illinois and extends to the Patoka, Illinois terminal. It has a heavy crude oil capacity of about 1, b/d and a committed capacity of 88, b/d. Nominations have exceeded capacity since December 25 and this is expected to continue. ExxonMobil/Enbridge Pegasus Pipeline The Pegasus pipeline was reversed in March 26 and runs from Patoka, Illinois to Nederland, Texas providing western Canadian crude oil producers with pipeline access to the U.S. Gulf Coast. It has a heavy crude oil capacity of 66, b/d, of which 5, b/d is committed capacity. Nominations have exceeded capacity since it was reversed. 4.2 Crude Oil Transportation Requirements As mentioned previously, CAPP has prepared a western Canadian crude oil supply forecast entitled the Pipeline Planning Case to assist industry in determining adequate pipeline capacity. The supply of western Canadian crude oil is expected to grow from 2.4 million b/d in 27 to 4.2 million b/d in 215 in the Pipeline Planning Case while, according to the CAPP refiner survey, demand will grow from 2.5 million b/d in 27 to 4. million b/d in 215. The results of the refiner survey indicate very little growth in demand by western Canadian refiners. Since western Canadian refiners generally receive the bulk of their supplies from feeder pipelines, additional pipeline capacity from western Canada will be required to ship the expected growth in crude oil supply to the various markets. CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS 18

26 Figure 4.1 Current Crude Oil Pipeline Expansions from Western Canada Burnaby Anacortes 1 Trans Mountain 2 Edmonton 5B Hardisty 5A 3 Express Superior Montréal Salt Lake City Guernsey Platte St. Paul Chicago Enbridge Sarnia Toledo Buffalo Portland 4 Wood River Patoka Lima Philadelphia Cushing Mid Valley Houston St. James Capline 1 Kinder Morgan TMX1A Expansion 2 Kinder Morgan TMX1B Expansion 3 TransCanada Keystone 4 TransCanada Keystone Cushing Extension 5A Enbridge Alberta Clipper 5B Enbridge Line 4 Extension The three major trunklines (Enbridge, Express and Trans Mountain) from western Canada have a current crude oil capacity of about 2.3 million b/d (excludes refined petroleum products on Enbridge and Trans Mountain as well as Natural Gas Liquids on Enbridge). The throughputs on these pipelines have occasionally been subject to capacity limitations either directly, in the case of Enbridge and Trans Mountain, through nominations exceeding capacity or indirectly due to downstream bottlenecks such as Platte Pipeline. Western Canadian crude oil pipelines are reaching the limits of their capacity, and therefore additional capacity is required. The incremental growth in crude oil supply employing CAPP s Pipeline Planning Case using 27 as the base year is shown in Table 4.2. Table 4.2 Incremental Western Canadian Crude Oil Supply to Market from 27-Pipeline Planning Case (thousand b/d) ,19 1,765 2,656 Currently, there are some crude oil pipeline expansions in various stages of construction from western Canada (Figure 4.1). As set out in Table 4.3, approximately 1.1 million b/d of pipeline capacity is being added through the end of 21 which should be sufficient until 213. It should be noted, however, that it generally takes four to five years for a new pipeline to be put into service. 19 CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS

27 Figure 4.2 Crude Oil Pipeline Expansions/Proposals to the US Midwest, Ontario, Québec & the US East Coast Edmonton Burnaby Anacortes Trans Mountain Salt Lake City Express 5B Hardisty Guernsey 5A Platte 4 Cushing Houston 6 St. Paul 18 Superior 8 Sarnia 9 1 Chicago Toledo B Lima Wood Patoka River St. James Enbridge 7A Capline Mid Valley Montréal Buffalo Philadelphia Portland 3 TransCanada Keystone 4 TransCanada Keystone Cushing Extension 5A Enbridge Alberta Clipper 5B Enbridge Line 4 Extension 6 Minnesota Pipeline Expansion 7A Enbridge Southern Access Expansion 7B Enbridge Southern Access Extension 8 Enbridge Line 5 Expansion 9 Enbridge Line 6B Expansion 1 Enbridge Line 6C 11 Enbridge Line 9 Re-reversal 12 Portland Pipeline Reversal 13 Sunoco to Philadelphia 14 Enbridge Pioneer (Opt2) 15 Enbridge Eastern PADD II 16 Enbridge Pioneer (Opt 1) 17 ExxonMobil Mustang Expansion 18 Enbridge Spearhead (N/S) 35 Enbridge North Dakota 36 Enbridge Light Sour Line Table 4.3 Current Oil Pipeline Expansions from Western Canada Pipeline Proposed Cumulative In Service Capacity Capacity Date (thousand b/d) (thousand b/d) Kinder Morgan TMX1A May Kinder Morgan TMX1B Nov TransCanada Keystone Dec Enbridge Alberta Clipper Jul TransCanada Keystone Extension 4Q ,8 4.3 Canadian and U.S. Crude Oil Pipeline Expansions and Proposals The remainder of this section focuses on pipeline expansions and proposals to ship western Canadian crude oil to the various markets and is divided into three areas: U.S. Midwest, Ontario, Québec, U.S. East Coast; the U.S. Gulf Coast; and the West Coast Crude Oil Pipeline Expansions and Proposals to the U.S. Midwest, Ontario, Québec and the U.S. East Coast There are currently two major crude oil pipeline expansions in various stages of construction from western Canada to the U.S. Midwest: Enbridge Alberta Clipper/Line 4 Extension and TransCanada Keystone totaling over 1 million b/d. Keystone is expected to add 435, b/d in late 29, followed by Alberta Clipper CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS 2

28 adding 45, b/d in mid-21, and then the TransCanada Keystone Cushing Extension with another 155, b/d in the fourth quarter 21. There are many other expansions or proposals that will connect to these two pipelines to deliver western Canadian crude oil to markets outside the U.S. Midwest such as, Ontario, Québec, PADD I and the U.S. Gulf Coast (Figure 4.2). These projects are summarized in Appendix C.1 TransCanada Keystone and Extension 3, 4 The Keystone pipeline will run from Hardisty, Alberta to terminals in Wood River and Patoka, and is scheduled to be in service in December 29 with an initial capacity of 435, b/d. The pipeline will include both new construction and the conversion of existing pipe that is currently in natural gas service. Keystone pipeline is proposing an extension to Cushing, Oklahoma and would connect at the Nebraska/Kansas border. The extension would increase capacity by 155, b/d to an ultimate capacity of 59, b/d with an in service date of the fourth quarter 21. Enbridge Alberta Clipper and Line 4 Extension 5A, 5B The 36-inch Clipper pipeline is an expansion of Enbridge s existing mainline system and will extend from Hardisty, Alberta to Superior, Wisconsin with a connection to the Minnesota pipeline at Clearbrook. The initial capacity would be 45, b/d and could be expanded to 8, b/d based on 1 percent heavy crude oil. It is scheduled to be in service in July 21. Enbridge will extend Line 4 back to Edmonton by connecting to currently deactivated 48-inch segments with a new 36-inch pipeline. It will have an initial capacity of 45, b/d and an ultimate capacity of 88, b/d, and the targeted in service date is March 29. The extension back to Edmonton is required for Enbridge Clipper to ensure heavy crude oil capacity is available. Minnesota Pipeline Expansion 6 The MinnCan project adds 165, b/d of capacity by constructing a new line, parallel to the existing system, from the Enbridge terminal at Clearbrook, Minnesota to the Flint Hills and Marathon refineries located near Minneapolis/St. Paul, Minnesota. It is scheduled to be in service in the third quarter 28. This could be expanded up to 35, b/d if pump stations are added. The current capacity of the existing pipeline is about 3, b/d. Enbridge Light Sour Line 36 As part of its Southern Lights diluent project, Enbridge is constructing a 2-inch 185, b/d light sour crude oil pipeline from Cromer, Manitoba to Clearbrook, Minnesota with an in service date of December 28. This expansion will provide access to growing crude oil deliveries into the Enbridge Cromer terminal from south east Saskatchewan. Enbridge Southern Access Expansion and Extension 7A, 7B Enbridge is completing construction of its Southern Access expansion program. The program starting at Superior, Wisconsin includes a new 42-inch pipeline to Delevan, Wisconsin, and then to Flanagan, Illinois where it will connect with the Enbridge Spearhead pipeline. The first phase to Delavan of Southern Access was completed in April 28 and the second phase to Flanagan will be completed by April 29 adding about 4, b/d of capacity. Further expansions to 6, b/d and 8, b/d can be achieved by adding pump stations. Enbridge is also proposing to extend the Southern Access pipeline to the Patoka, Illinois hub from Flanagan with a 36-inch line that would have an initial capacity of 4, b/d, and an in service date in the second quarter 29. Enbridge Spearhead 18 The Southern Access pipeline will connect with Spearhead at Flanagan in May 29. At that time, Spearhead will have a north and south section. The north section will be reversed to flow north to Chicago and will maintain its current capacity of 13, b/d. Enbridge will increase the capacity of the south portion by 65, b/d to 19, b/d, with a completion date of third quarter 29. Of the 65, b/d increase, 3, b/d is allocated to committed shippers. 21 CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS

29 Enbridge Line 5 Expansion 8 Line 5 extends from Superior, Wisconsin to Sarnia, Ontario. The expansion consists of adding Drag Reducing Agent (DRA), and is expected to add 5, b/d of new light crude oil capacity by the first quarter 29. Total capacity will then approximate 54, b/d. Enbridge Line 6B Debottleneck and Expansion 9 Enbridge is exploring various options to expand Line 6B from its current capacity of 19, b/d which extends from Chicago, Illinois to Sarnia. Tank constraints are currently reducing useable capacity from 29, b/d to 19, b/d. In addition to adding two tanks, proposals include adding pump stations and new tanks which could add 235, b/d of capacity. Total new capacity would approximate 425, b/d and the projected in service date is first quarter 21. This new capacity would be required should Enbridge s Line 9 be reversed. Enbridge Montréal-to-Sarnia (Line 9) and Portland Pipeline Reversal 11, 12 Enbridge is currently discussing with industry the re-reversal of Line 9 to flow from Sarnia to Montréal. The discussions also include a reversal of one line on the Portland Pipeline system. If re-reversed, Line 9 could ship about 215, b/d of crude to the Montréal refineries of Petro-Canada and Shell Canada or on the reversed 2, b/d Portland Pipeline where it would be loaded on tankers. These projects could be in service by the second quarter 21. Enbridge North Dakota 35 The North Dakota pipeline connects to the Enbridge Lakehead pipeline at Clearbrook, Minnesota, and provides producers in Montana and North Dakota with access to markets in PADD II and Ontario. Increased production in these areas has resulted in a need for additional pipeline capacity and, as a result, Enbridge added 3, b/d of capacity to the North Dakota system in January 27, and is planning another 52, b/d by January 21. Total system capacity in 21 will be 162, b/d. ExxonMobil Mustang Pipeline and Enbridge Line 14 Extension 17 Enbridge is reviewing an extension (seven miles) of Line 14 to connect with the Mustang pipeline at Lockport, Illinois to ship light crude oil. The capacity would range between 13, and 18, b/d, and could be in service in 21. The Mustang expansion proposal includes a connection to Enbridge s Line 14 and, assuming light crude oil service only, would provide a dedicated light crude oil line from Hardisty to Patoka, Illinois and could be in service by mid-21. If used for light crude oil only, the capacity is 13, b/d and could be expanded to 18, b/d. Enbridge Line 6C 1 Enbridge is considering a new 36-inch line from its Griffith/Hartsdale terminal to Stockbridge, Michigan that would parallel Line 6B. The intent is to supply additional demand by Michigan and Ohio refineries. The estimated capacity would be 4, b/d with an in service date of 212. If needed, the line could be extended to Sarnia, Ontario. Sunoco Pipeline to Philadelphia 13 Sunoco is considering a light sweet crude oil pipeline to refineries in the Philadelphia area, including its Marcus Hook, Pennsylvania refinery in the 212 timeframe. The project includes connecting to Enbridge and then using the existing Sunoco right-of-way to build a new 24-inch pipeline from Buffalo to Philadelphia. The capacity would be about 4, b/d. Enbridge Pioneer PADD I Two Options 14, 16 Enbridge is considering two options to access refineries in the Philadelphia market with western Canadian light sweet synthetic crude oil in 213 to 215. Pioneer Option 1 is a new 3-inch bullet line from Chicago to Philadelphia while Option 2 is a new 3-inch bullet line from Westover, Ontario to Philadelphia. Both lines are designed to ship 4, b/d and industry will determine which option proceeds. CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS 22

30 Figure 4.3 Crude Oil Pipeline Expansions/Proposals to the US Gulf Coast Edmonton Burnaby Anacortes Trans Mountain Express 5B Hardisty 5A Superior Montréal Salt Lake City Guernsey Platte St. Paul 7A Chicago Enbridge Sarnia Toledo Buffalo Portland Cushing Houston Wood River St. James 7B Patoka Capline Mid Valley Lima Philadelphia 3 TransCanada Keystone 4 TransCanada Keystone Cushing Extension 5A Enbridge Alberta Clipper 5B Enbridge Line 4 Extension 7A Enbridge Southern Access Expansion 7B Enbridge Southern Access Extension 18 Enbridge Spearhead Expansion (N/S) 19 Sunoco to US Gulf Coast 2 ExxonMobil/Enbridge Texas Access 21 ExxonMobil/Enbridge Pegasus Expansion 22 Centurion Pipeline Reversal 23 TEPPCO/Kinder Morgan Chinook/Maple leaf 24 BP No TransCanada Keystone XL 26 Altex Energy Enbridge Eastern PADD II 15 Enbridge is proposing a two-phase program to increase deliveries of western Canadian crude oil to eastern PADD II refineries. Phase 1 would increase capacity by 2, b/d to 12, b/d in the fourth quarter 21 to serve increased demand by Marathon s Detroit refinery. Phase 2 would increase pipeline capacity from 12, b/d to 43, b/d to serve the Toledo and Lima, Ohio refineries. Phase 2 includes a new 36-inch line from Stockbridge to Samaria and then 2-inch laterals to Toledo and Lima. This phase could be in service by 213 to Crude Oil Pipeline Expansions/Proposals to the U.S. Gulf Coast The U.S. Gulf Coast began receiving western Canadian crude oil by pipeline in April 26 through the reversed ExxonMobil Pegasus pipeline, and it has been at capacity (66, b/d) since that time. Prior to this, there were and continues to be spot vessel movements of western Canadian crude oil from Trans Mountain s Westridge dock. Due to the large refining capacity (about 8 million b/d) of the PADD III market, western Canadian producers have been assessing various pipeline proposals to the Gulf Coast (Figure 4.3). Appendix C.2 is a summary of the crude oil pipeline proposals to the U.S. Gulf Coast There are three pipelines proposing bullet lines from Alberta to the U.S. Gulf Coast TEPPCO/Kinder Morgan, TransCanada Keystone XL and Altex Energy with total 23 CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS

31 Figure 4.4 Crude Oil Pipeline Expansions/Proposals to the West Coast 3 Burnaby Anacortes Trans Mountain 2 Edmonton Hardisty 29 Express Superior Montréal Salt Lake City Guernsey Platte St. Paul Chicago Wood River Enbridge Patoka Sarnia Toledo Lima Buffalo Philadelphia Portland Cushing Mid Valley Houston St. James Capline 1 Kinder Morgan TMX1A Expansion 2 Kinder Morgan TMX1B Expansion 27 Kinder Morgan TMX2 28 Kinder Morgan TMX3 29 TransCanada Alberta-California 3 Enbridge Northern Gateway 31 Kinder Morgan TMX Northern Leg capacity of about 1,565, b/d in the 211 to 214 timeframe. Four pipeline companies ExxonMobil/Enbridge, Sunoco, ExxonMobil and Centurion are proposing new pipelines, expansions or reversal of existing lines to ship western Canadian crude oil from the U.S. Midwest to the Gulf Coast. Total proposed pipeline capacity from the Midwest approximates 835, b/d and in service dates range from 29 for the smaller expansions to 211 for the major expansions. (Figure 4.3) ExxonMobil Pipeline Enbridge Pipelines Texas Access Joint Initiative 2 ExxonMobil and Enbridge are proposing the Texas Access pipeline which consists of a new 3-inch crude oil pipeline from Patoka, Illinois to Beaumont, Texas with a capacity of 445, b/d, and a connecting lateral to Houston with an in service date of mid-211. With horsepower additions, the pipeline could expand to more than 55, b/d. Sunoco Pipeline to Gulf Coast 19 Sunoco has a proposal to construct a 24 or 26-inch line from Cushing, Oklahoma to its Wortham, Texas terminal, and then reverse a 26-inch pipeline to Nederland, Texas. The Cushing portion would have an initial capacity of 3, b/d with a potential in service date of 211, and it could have an ultimate capacity of 4, b/d. TEPPCO/Kinder Morgan - Chinook/Maple Leaf Pipeline 23 The TEPPCO and Kinder Morgan proposal would ship crude oil from Hardisty to the U.S. Gulf Coast. The Chinook-Maple Leaf pipeline would primarily utilize existing Kinder Morgan and TEPPCO right-of-way. It would consist of 36-inch pipeline with a capacity of 44, b/d from Hardisty and 55, b/d from Cushing, and both would have expansion capabilities. They project an in service date of late 211 or early 212. The companies are offering an equity position for foundation shippers. CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS 24

32 BP Pipelines (North America) 24 BP is proposing a redeployment of existing pipeline infrastructure from Chicago. It is considering the reversal of its Cushing to Chicago pipeline (BP No. 1), which would provide 1, b/d of light crude oil capacity. No information is available with respect to in service date. TransCanada Keystone XL 25 TransCanada is currently proposing a 7, b/d 36-inch pipeline from Hardisty where it would connect with the proposed Cushing Extension at the Nebraska/ Kansas border, and then to Port Arthur and Houston, Texas. The intent is to have a bullet pipeline from Hardisty to the U.S. Gulf Coast in 211 or 212. Altex Energy 26 Altex is currently working with five parties to develop a 36-inch pipeline to ship heavy crude oil/bitumen from various locations in Alberta to the Port Arthur/ Beaumont, Texas area. It will have an initial capacity of 425, b/d and can expand to 1 million b/d with pumping additions. Altex will employ proprietary technologies that will use less diluent per barrel of bitumen than is required by other pipelines. The system will employ 1, barrel batches and no break out tanks which will enhance batch integrity. It would be a contract carrier with some capacity for spot shippers, and could be in service in 213/14. ExxonMobil/Enbridge Pegasus Pipeline 21 The Pegasus expansion would increase capacity by 3, b/d from Patoka, Illinois to Nederland, Texas with a start up date of early 29. Centurion Pipeline Reversal 22 Centurion Pipeline, owned by Occidental Petroleum, is considering the reversal of an existing 16-inch common carrier pipeline to deliver western Canadian heavy crude oil from Cushing to Slaughter, Texas. If the binding open season is successful, it could ship 6, b/d and be in service by the fourth quarter Crude Oil Pipeline Expansions and Proposals to the West Coast The map in Figure 4.4 illustrates crude oil pipeline expansions from western Canada to the West Coast. By 214, there are proposals to add 1.6 million b/d of crude oil pipeline capacity from Alberta to the west coast of British Columbia, Washington State and California. Appendix C.3 summarizes the pipeline expansions and proposals to the West Coast. Kinder Morgan TMX 1 1, 2 TMX1A and TMX1B will add 25, and 15, b/d, respectively, of capacity by November 28. At that time, capacity will increase to 3, b/d with about 2 percent of this capacity consisting of heavy crude oil. Kinder Morgan TMX2, TMX3 and Northern Leg 27, 28, 31 A scope change from its 27 proposal has shifted some capacity and capital costs from TMX2 to TMX3. TMX2 is now projected to increase capacity by at least 8, b/d to 38, b/d by 211. TMX2 will be a new line from Edmonton to Kamloops, British Columbia. TMX3 is a new line to the Washington State refineries and a second Westridge dock berth. TMX 3 adds 3, b/d of new capacity resulting in a total capacity of 68, b/d by 211. These expansions would provide additional access to Vancouver, Washington State and other markets served by oil tankers and barges which load at its Westridge dock. TMX Northern Leg is a proposed 4, b/d pipeline extending from its existing system near Rearguard, British Columbia to a deep water port facility at Kitimat, British Columbia that would accommodate Very Large Crude Carriers (VLCC) for delivery to PADD V or the Far East. Depending on industry support, the pipeline could be in service by 212. This option allows companies to ship on the north or south line. Enbridge Northern Gateway 3 The Northern Gateway project includes the construction of a new 3-inch pipeline from Edmonton, Alberta to a deep water port at Kitimat, British Columbia and is being designed to provide 4, b/d of crude oil export capacity. Crude oil would be loaded on tankers for 25 CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS

33 Figure 4.5 Diluent Pipeline Proposals 32 Edmonton Burnaby Anacortes Trans Mountain Hardisty Express 33 Superior Montréal Salt Lake City Guernsey Platte St. Paul Chicago Enbridge Sarnia Toledo Lima Buffalo Philadelphia Portland Cushing Wood River Patoka Mid Valley 34 Capline Houston St. James 32 Enbridge Gateway Condensate Import 33 Enbridge Southern Lights 34 Capline/Chicap delivery to PADD V and the Far East. Enbridge is, depending on industry support, anticipating an in service date between 212 and 214. TransCanada Alberta California 29 TransCanada is in discussion with parties to ship 4, b/d of western Canadian crude oil by pipeline to California. The estimated in service date is Diluent Pipeline Proposals Enbridge Southern Lights 33 The project is in response to demand by western Canadian heavy crude oil producers for additional diluent supply from various sources in the U.S. Midwest. The project includes a new 16-inch diluent line from Flanagan, Illinois (near Chicago) to Clearbrook, Minnesota, and the reversal of its Line 13 from Clearbrook to Edmonton, Alberta. The capacity of the diluent import line is 18, b/d, of which 77, b/d is for committed shippers, and can be expanded to 3, b/d. The in service date of July 21 will coincide with crude oil expansions on the Enbridge mainline system (i.e. Alberta Clipper/Line 4 extension) in order that eastbound capacity is unaffected. Joint Capline/Chicap Industry Initiative 34 Both pipelines have recently announced that they will commence shipping a limited amount of diluent from the U.S. Gulf Coast to Chicago by the second quarter 29 and expand there capabilities in the first half 21. They are intending to connect to the Enbridge Southern Lights pipeline. Capline extends from St. James, Louisiana to Patoka and has a capacity of more than 1 million b/d while Chicap runs from Patoka to Mokena, Illinois with a capacity of about 3, b/d. The level of diluent deliveries is not known at this time. CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS 26

34 Enbridge Gateway Condensate Import 32 As part of its Northern Gateway crude oil pipeline project, Enbridge is proposing a 15, b/d diluent import pipeline that would extend from Kitimat, British Columbia to Edmonton, Alberta. It would supply diluent to western Canadian heavy crude oil producers, and the in service date will coincide with the crude oil export pipeline between 212 and Summary In total, the aggregated results of the unadjusted CAPP refiner survey are above CAPP s western Canadian crude oil supply forecast in the Pipeline Planning Case through 213, and then slightly below the supply forecast. Approximately 1.1 million b/d of pipeline capacity from western Canada is being added through the end of 21 which should be sufficient until 213 in comparison to the growth in the Pipeline Planning Case. There is, however, potential for expansions into new markets such as Québec, PADD I, eastern PADD II, PADD III, California and Asia. In particular, with respect to PADDs I and III, this is demonstrated by the number of pipeline proposals to both of these new markets. Producers are currently assessing which proposals to support based on there specific production plans. 27 CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS

35 5 CONCLUSIONS CAPP's annual oil supply forecast has two cases, both looking out to 22. The Moderate Growth Case represents the "expected" outlook while the more aggressive Pipeline Planning Case has been developed for pipeline planning purposes. In the Moderate Growth Case, western Canadian crude oil supply is projected to increase from 2.4 million b/d in 27 to almost 4.5 million b/d in 22. In the Pipeline Planning Case, supply rises to about 5.1 million b/d. Compared to last year the forecast is about 2, to 4, b/d lower. The growth in oil sands remains significant; the potential for oil sands projects to reach capacity is unchanged but this will be accomplished over a longer period due to continuing and new challenges. In order to accommodate this growth, approximately 1.1 million b/d of pipeline capacity is being added from western Canada through the end of 21, which should be sufficient until 213 given the growth in the Pipeline Planning Case. Subsequently, additional pipeline capacity will be required to meet expected oil sands growth. There are pipeline proposals that will enable access to several markets in North America, including a pipeline reversal to extend access deeper into eastern Canada. The other notable markets, which have significant potential to process increasing volumes of Canadian crude oil, include new markets in the United States and potentially Asia. Producers are currently assessing these markets in order to decide which pipeline proposals to support. This report provides the current state of the supply outlook, the market potential and the pipelines proposals to enable a more complete understanding of the current Canadian crude oil picture. CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS 28

36 APPENDIX A ACRONYMNS, ABBREVIATIONS, UNITS & CONVERSION FACTORS ANS API CAPP CSS DRA ERCB PADD S SAGD SSB U.S. EIA WCSB Alaska North Slope American Petroleum Institute Canadian Association of Petroleum Producers Cyclic Steam Stimulation Drag Reducing Agent (Alberta) Energy & Resources Conservation Board Petroleum Administration for Defense District Sulphur Steam Assisted Gravity Drainage Syncrude Sweet Blend United States Energy Information Administration Western Canada Sedimentary Basin Canadian Provincial Abbreviations AB Alberta BC British Columbia MB Manitoba NWTNorthwest Territories ON Ontario QC Québec T U.S. State Abbreviations CA California ID Indiana IL Illinois KS Kansas ME Maine MI Michigan MN Minnesota NE Nebraska NY New York OK Oklahoma PA Pennsylvania X T exas WI Wisconsin Units b/d kb/d barrels per day thousand barrels per day Conversion Factor 1 cubic metre = barrels (oil) 29 CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS

37 CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS 3 APPENDIX B.1 CAPP CANADIAN CRUDE OIL PRODUCTION FORECAST Thousand barrels per day Actuals Forecast MODERATE GROWTH JUNE 28 CONVENTIONAL Light & Medium Alberta B.C Saskatchewan 1, Manitoba N.W.T Total Conv. Light and Medium Heavy Alberta Conv. Heavy Saskatchewan Conv. Heavy 1, Total Conventional Heavy TOTAL CONVENTIONAL 1,226 1,157 1,12 1,89 1,53 1,37 1, PENTANES/CONDENSATE OIL SANDS Oil Sands Mining ,43 1,193 1,326 1,467 1,594 1,649 1,76 1,779 1,961 Oil Sands In-Situ ,79 1,224 1,32 1,368 1,413 1,471 1,58 1,578 TOTAL OIL SANDS ,125 1,22 1,31 1,526 1,619 1,769 2,17 2,272 2,55 2,769 2,962 3,62 3,177 3,287 3,539 WESTERN CANADA OIL PRODUCTION 2,71 2,65 2,146 2,236 2,188 2,328 2,385 2,47 2,664 2,732 2,856 3,8 3,31 3,562 3,754 3,92 3,994 4,84 4,17 4,399 EASTERN CANADA OIL PRODUCTION TOTAL CANADIAN OIL PRODUCTION 2,22 2,351 2,483 2,55 2,493 2,632 2,753 2,835 2,974 2,967 3,16 3,325 3,51 3,727 3,894 4,4 4,99 4,174 4,25 4,474 Notes: 1. CAPP allocates Saskatchewan Area III Medium crude as heavy crude. Also 17% of Area IV is > 9 kg/m CAPP has revised from June 27 report historical light/heavy ratio for Saskatchewan starting in Eastern Canada production only includes Newfoundland production.

38 31 APPENDIX B.2 CAPP CANADIAN CRUDE OIL PRODUCTION FORECAST PIPELINE PLANNING JUNE 28 Thousand barrels per day Actuals Forecast CONVENTIONAL Light & Medium Alberta B.C Saskatchewan 1, Manitoba N.W.T Total Conv. Light and Medium Heavy Alberta Conv. Heavy Saskatchewan Conv. Heavy 1, Total Conventional Heavy TOTAL CONVENTIONAL 1,226 1,157 1,12 1,89 1,53 1,37 1, CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS PENTANES/CONDENSATE OIL SANDS Oil Sands Mining ,181 1,342 1,514 1,692 1,741 1,782 1,857 2,43 2,179 Oil Sands In-Situ ,7 1,186 1,329 1,444 1,53 1,592 1,682 1,783 1,919 TOTAL OIL SANDS ,125 1,22 1,359 1,572 1,71 1,89 2,251 2,528 2,843 3,135 3,27 3,373 3,539 3,825 4,97 WESTERN CANADA OIL PRODUCTION 2,71 2,65 2,146 2,236 2,188 2,328 2,385 2,518 2,71 2,822 2,977 3,314 3,566 3,855 4,12 4,228 4,35 4,447 4,79 4,957 EASTERN CANADA OIL PRODUCTION TOTAL CANADIAN OIL PRODUCTION 2,22 2,351 2,483 2,55 2,493 2,632 2,753 2,883 3,2 3,57 3,227 3,559 3,766 4,2 4,26 4,348 4,41 4,537 4,789 5,32 Notes: 1. CAPP allocates Saskatchewan Area III Medium crude as heavy crude. Also 17% of Area IV is > 9 kg/m CAPP has revised from June 27 report historical light/heavy ratio for Saskatchewan starting in Eastern Canada production only includes Newfoundland production.

39 CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS 32 APPENDIX B.3 CAPP CANADIAN CRUDE OIL SUPPLY FORECAST Thousand barrels per day Actuals Forecast MODERATE GROWTH JUNE 28 CONVENTIONAL Total Light and Medium Net Conventional Heavy to Market TOTAL CONVENTIONAL 1,165 1,94 1,55 1, OIL SANDS Upgraded Light ,121 1,255 1,348 1,482 1,585 1,625 1,677 1,75 1,812 Bitumen Blend ,34 1,74 1,27 1,321 1,464 1,562 1,662 1,722 1,784 1,871 2,48 TOTAL OIL SANDS AND UPGRADERS ,3 1,23 1,199 1,41 1,478 1,6 1,818 1,919 2,64 2,327 2,576 2,812 3,45 3,247 3,347 3,461 3,576 3,86 Total Light Supply 1,77 1,114 1,11 1,157 1,18 1,16 1,22 1,253 1,391 1,414 1,53 1,618 1,736 1,812 1,929 2,15 2,4 2,77 2,89 2,183 Total Heavy Supply ,97 1,76 1,213 1,211 1,263 1,321 1,372 1,44 1,527 1,634 1,768 1,855 1,944 1,994 2,46 2,123 2,291 WESTERN CANADA OIL SUPPLY 1,983 2,1 2,83 2,255 2,184 2,373 2,431 2,516 2,712 2,786 2,96 3,146 3,372 3,58 3,785 3,961 4,34 4,124 4,214 4,474 Notes: 1 Includes upgraded conventional 2 Includes: a) imported condensate b) manufactured diluent from upgraders and c) upgraded heavy volumes coming from upgraders

40 33 APPENDIX B.4 CAPP CANADIAN CRUDE OIL SUPPLY FORECAST PIPELINE PLANNING JUNE 28 Thousand barrels per day Actuals Forecast CONVENTIONAL Total Light and Medium Net Conventional Heavy to Market TOTAL CONVENTIONAL 1,165 1,94 1,55 1, OIL SANDS Upgraded Light ,16 1,155 1,34 1,412 1,567 1,67 1,75 1,771 1,921 2,45 Bitumen Blend ,93 1,178 1,399 1,524 1,743 1,889 1,914 1,983 2,95 2,245 2,428 TOTAL OIL SANDS AND UPGRADERS ,3 1,23 1,199 1,41 1,478 1,652 1,868 2,12 2,194 2,554 2,828 3,156 3,456 3,584 3,688 3,867 4,165 4,473 Total Light Supply 1,77 1,114 1,11 1,157 1,18 1,16 1,22 1,296 1,417 1,449 1,529 1,653 1,785 1,876 2,14 2,11 2,12 2,171 2,35 2,416 Total Heavy Supply ,97 1,76 1,213 1,211 1,272 1,345 1,431 1,58 1,719 1,836 2,47 2,182 2,196 2,255 2,357 2,497 2,671 WESTERN CANADA OIL SUPPLY 1,983 2,1 2,83 2,255 2,184 2,373 2,431 2,567 2,762 2,88 3,36 3,372 3,621 3,923 4,196 4,297 4,375 4,528 4,82 5,87 CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS Notes: 1 Includes upgraded conventional 2 Includes: a) imported condensate b) manufactured diluent from upgraders and c) upgraded heavy volumes coming from upgraders

41 APPENDIX C CANADIAN & U.S. CRUDE OIL PIPELINE EXPANSIONS AND PROPOSALS Appendix C.1 Crude Oil Pipeline Expansions and Proposals to the U.S. Midwest, Ontario, Québec and the U.S. East Coast Pipeline End Proposed In Capacity Origin Point Service Date (thousand b/d) TransCanada Keystone Hardisty, AB Patoka, IL December Enbridge Alberta Clipper/Line 4 Extension Edmonton, AB Superior, WI July TransCanada Keystone Cushing Extension KS/NE border Cushing, OK 4Q Minnesota Pipeline Expansion Clearbrook, MN St. Paul, MN 3Q Enbridge Light Sour Line Cromer, MB Clearbrook, MN December Enbridge Southern Access Expansion Superior, WI Flanagan, IL April 29 4 Enbridge Southern Access Extension Flanagan, IL Patoka, IL 2Q 29 4 Enbridge Spearhead - South Flanagan, IL Cushing, OK 2Q Enbridge Spearhead - North Flanagan, IL Chicago, IL 2Q Enbridge Line 5 Expansion Superior, WI Sarnia, ON 1Q 29 5 Enbridge Line 6B Expansion Chicago, IL Sarnia, ON 1Q Enbridge North Dakota North Dakota Clearbrook, MN January Enbridge Line 14 Extension Lockport, IL Mustang Pipeline Enbridge Line 6C Griffith/Hartsdale, ID Stockbridge, MI Sunoco Pipeline to Philadelphia Buffalo, NY Philadelphia, PA Enbridge Pioneer Option 1 Chicago, IL Philadelphia, PA 213/15 4 Enbridge Pioneer Option 2 Westover, ON Philadelphia, PA 213/15 4 Enbridge Eastern PADD II 2 Phases Stockbridge, MI Toledo, OH 213/15 43 Redeployment of Existing Infrastructure ExxonMobil Mustang conversion to light service Lockport, IL Patoka, IL Mid 21 5 BP Pipelines #1 reversal Chicago, IL Cushing, OK TBD 1 Enbridge Line 9 re-reversal Sarnia, ON Montréal, QC 2Q Portland reversal Montréal, QC Portland, ME 2Q 21 2 CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS 34

42 Appendix C.2 Crude Oil Pipeline Proposals to the U.S. Gulf Coast Cumulative Pipeline End Proposed In Capacity Capacity Origin Point Service Date (thousand b/d) (thousand b/d) ExxonMobil/Enbridge Texas Access Patoka, IL Beaumont, TX Sunoco Pipelines to US Gulf Coast Cushing, OK U.S. Gulf Coast TEPPCO/Kinder Morgan Chinook-Maple Leaf Hardisty, AB U.S. Gulf Coast 211/ ,185 TransCanada Keystone XL Hardisty, AB U.S. Gulf Coast 211/ ,885 Altex Energy Fort McMurray/ Hardisty, AB Beaumont/Port Arthur, TX 213/ ,31 ExxonMobil Pegasus Patoka, IL U.S. Gulf Coast 1Q ,34 Redeployment of Existing Infrastructure Centurion Pipeline - reversal Cushing, OK Slaughter, TX 4Q CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS

43 Appendix C.3 Current Oil Pipeline Expansions and Proposals to the West Coast Cumulative Pipeline End Proposed In Capacity Capacity Origin Point Service Date (thousand b/d) (thousand b/d) Kinder Morgan TMX1A Edmonton, AB May Kinder Morgan TMX1B Edmonton, AB Kamloops, BC November Kinder Morgan TMX2 Edmonton, AB Kamloops, BC Kinder Morgan TMX3 Kamloops, BC Sumas, BC Kinder Morgan TMX Northern Leg Rearguard/Edmonton, AB Kitimat, BC Enbridge Northern Gateway Edmonton, AB Kitimat, BC ,22 TransCanada AB-CA AB CA ,62 CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS 36

44 APPENDIX D CRUDE OIL PIPELINES AND REFINERIES 37 CRUDE OIL FORECAST, MARKETS AND PIPELINE EXPANSIONS

45 CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS 38